Smart KPIs for Sustainability Initiatives

In any corporate sustainability project, whether it is reducing greenhouse gas emissions, paper use, or supply chain waste, choosing the right key performance indicators (KPIs) is a key ingredient to success. At the conference on Environmental, Social and Governance (ESG) Issues hosted by the Canadian Institute of Chartered Accountants (CICA), Cathy Cobey from Ernst & Young talked about how to choose the right KPIs.

Among the more interesting presentations include how Standard & Poor’s incorporates climate change risks in their ratings, how TD bank evaluates the sustainability aspects of investment opportunities, how Deloitte applies their Risk Rating Matrix to help clients evaluate climate change risks.

One of the most insightful sessions was on choosing key performance indicators for corporate environmental and climate change initiatives. Cathy Cobey, Canadian Leader of Ernst & Young’s Climate Change and Sustainability Practice, shared her experience on how to choose the right KPIs. Here are the key points with my additional comments.

1. Choose KPIs that are really key

Choose KPIs that will generate the biggest impact. Involve a wide range of people in the company to ensure big factors are not missed. Since you are unlikely to be able to focus on all KPIs, choose only two to three to focus on in each phase that are appropriate for the company’s sustainability maturity level.

2. Choose KPIs that are measurable

KPIs must be measurable. But don’t be tempted to choose factors just because they are easy to measure. Choose what is key, then try your best to measure them.

3. Choose KPIs that regularly change

Some KPIs are important and measurable, but may not change much in the short to medium term. Choose KPIs that regularly change to reflect short term progress and provide more timely feedback.

4. Consider industry specific KPIs

Generally, KPIs that are more industry specific are likely to be more useful. An automotive manufacturer may measure fuel efficiency. A consumer product company may measure supply chain carbon footprint. A mining company may measure the number of votes for or against environmental shareholder resolutions. Develop a good understanding of what is important to the company and its industry before selecting the KPIs.

5. Choose only a few KPIs

Sustainability projects often have limited budgets. This forces you to choose fewer KPIs and focus on the few that are really key.

6. Choose KPIs that are meaningful to your stakeholders

Different KPIs speak differently to various groups of stakeholders. Choosing KPIs that resonate with your key stakeholders could help gain support for the project.

7. Choose KPIs that connect to the core business strategies

Sustainability KPIs that connect with core business strategies have more synergy and could require less effort to implement. You may consider the CEO messages in company reports and web sites, then align sustainability KPIs with those messages where possible.

Do you have any experience with sustainability KPIs? Do any of the above points resonate with you? Are there other points you would like to add? Leave me with a comment below.

Derek Wong is a Toronto based sustainability consultant. See contact info and more posts like this at Carbon49.com.

4 thoughts on “Smart KPIs for Sustainability Initiatives”

I agree KPI’s are important. What else is important is developing a strategy. This will identify the KPI’s and also structure an attack plan to eventually address all issues. We work as a sustainability consulting firm in Colorado and are finding that sometimes it makes more sense to simply strategize with businesses before really categorizing or prioritizing which issues to address first.

As mentioned in the previous comment, defining the comoany’s sustainability strategy should be the first step, this is the primary ingredient for success. Choosing the right KPIs, that help measuring the efficiency of the strategy are important too obviously but they will be useless if the sustainability strategy is not clearly defined first.

Before making my comment on the article, a note on strategy: A sustainability strategy does not always need to be the first step. Companies often cannot grasp the right issues at the beginning of their sustainability efforts. For some of our clients, we have built one or two Smart KPIa as the first step. We let them run for six months then used the data to inform the strategy. The company cannot develop an effective strategy for something it does not measure – and, therefore, does not understand.

What motivated me to write was the article title of “Smart KPIs…” and then the article not talking about them – the examples quoted “gas mileage” or “votes on a shareholder resolution” are not Smart KPIs. A Smart KPI is one that clearly links sustainability performance to business goals in a way that the business can directly use in both programs. For instance we have built Smart KPIs for an apparel client that measure “energy intensity of product per dollar of revenue” – one for existing product and for their line of more sustainable products. We built these measures directly into Senior Management’s Balanced Scorecard.

I believe that energy use should be a standard KPIs. It is inherently measurable, and is common to every company across all sectors. All consume energy at various levels and in various forms. Most companies can easily find a number of ways to cut back on their energy use, especially if they’re just getting started down the path of sustainability. Energy savings translates to real cost savings which improves your public/peer image, as well as your bottom line. Once a company has taken all the “low hanging fruit” it’s time to shift focus to some of the more challenging initiatives like renewables!